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Deficit Talks: On the Road to Armageddon

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- America's finances are headed for a train wreck.

By Nov. 23, the Super Committee in Congress must come up with a package to cut the federal deficit by $1.2 trillion over ten years or draconian cuts in defense and discretionary spending follow.

Something still may be cobbled together but the federal deficit would remain too large and could easily fly out of control. Genuine progress is not possible, because the principals won't even accept the facts.

Democrats harp that Bush tax cuts, wars and prescription drug plan for seniors caused the deficit to swell to $1.3 trillion in 2011. Yet, with all those at play, the deficit was only $161 in 2007.

Dodd-Frank was, from the beginning, doomed to be just another device of regulatory strangulation.

Spending is up $847 billion, and additional temporary tax cuts -- such as the payroll tax holiday -- account for the rest of the increased deficit. Only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Most economists agree GDP growth is likely to be in the range of 2% over the next several years, and such slow growth and high unemployment will accelerate spending on entitlements, while retarding the growth of tax revenues.

Even with somewhat more robust growth, Medicare, Medicaid and Veterans' benefits costs will outpace the government's ability to raise revenue, because prices in health care rise so much faster than elsewhere in the economy.

Globalization has been accelerated by U.S. participation in the WTO and other trade agreements. This policy is founded on the belief that increased trade, while imposing adjustments, creates enough opportunities -- cheaper products and new export markets -- to raise living standards overall. However, if global competition is causing slower growth, high unemployment and falling wages, how can free trade foster prosperity?

The answer lies in what trade agreements leave out -- manipulation of exchange rates by China and others, subsidies such as those bestowed by Europe on Airbus, and export controls such as China's limits on rare earth minerals essential in making electronic components. Yet, many liberal Democrats and conservative Republicans -- especially, influential academics and powerful campaign contributors in finance and high tech -- tar as protectionist anyone offering meaningful solutions to those problems.
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